'Grim' retail sales index tells only fraction of story

Jake van der Kamp

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

The grim performance of Hong Kong's retail sales continued in June, producing the worst first-half showing since 2009.

SCMP, August 1

And this was the top story on the front page on Friday, which means that the boss must have thought it the most important news of the day (there were no corruption arrests in China the previous evening, I think).

I shall now do my best to make it a less important item of news. This is an easy task, really. It requires the revelation of only one fact. The retail sales survey that goes into making up the retail sales index covers only 31 per cent of retail sales in Hong Kong.

That's right, fewer than one-third of total retail sales. It used to be fewer than one-quarter but then we had the shopping boom by mainland tourists, which redoubled in intensity in 2010. Mainland shoppers buy the sorts of things that show up in the retail sales survey.

What types of things are these?

Thing-type things, that's what they are - tangibles, consumer durables and non-durables, jewellery and junk, the sorts of purchases that make you say, "We could never move to a smaller flat cuz where would we put all of our stuff?"

But then here is another of Jake's Patented Astonishing Facts for you.

Most of what we buy (mainland tourists excepted, of course) isn't stuff. Most of what we buy is services - haircuts, doctors' consultations, education, cinema, concerts, and the list goes on and on.

These purchases account for about 52 per cent of total consumer spending, and the interesting fact is that none of them show up in the retail sales report. They just don't exist when this tally is done.

Also eliminated from existence are any purchases you make online. The retail sales report simply ignores them. The internet never happened. Amazon, PayPal, eBay, they just don't exist.

The only place that they do exist in our official statistics is in the personal consumption expenditure segment of our quarterly gross-domestic-product report. You'll see true facts of retail sales there again this month when the second-quarter GDP figures are published.

Why do we continue to publish this defective retail sales index?

I have asked the Census and Statistics people and they just say what they repeat in their news release every month - "These retail sales statistics are primarily intended to measure the sales receipts in respect of goods sold by local retail establishments, for gauging the short-term business performance of the local retail sector."

This just evades the question, of course. Let me rephrase the answer - "Someone in authority pushed the Go button and now we can't stop unless someone in authority pushes the Stop button and you're not someone in authority."

But let's cut to the chase. The chart gives you an indication of how much all of this might affect consumer activity. The blue line represents the growth of the retail sales index, the red line the growth of total domestic-market spending.

For the red line I only have data up to March, but the trend seems pretty obvious. Yes, it is slowing down but unlikely to be negative. It did not go over the top in 2010, it is unlikely to go through the bottom this year. There is no need to push a panic button.

And one big reason that the retail sales index is down so much is that retailers of stuff just haven't been able to drive up their prices for the last two years. The market resists, the mainland tourists cannot be pushed.

Oh, I cry such enormous, huge tears.

This article appeared in the South China Morning Post print edition as Don't panic, retail sales index doesn't tell whole story

I motion that we drop the term "shoebox" to describe our flats and use the term "matchbox".

johnyuan Aug 3rd 20146:39am

（Thing-type things, that's what they are - tangibles, consumer durables and non-durables, jewellery and junk, the sorts of purchases that make you say, "We could never move to a smaller flat cuz where would we put all of our stuff?"）
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Credit to JvdK for connecting the dots what LKS’s small flat would do to retailing business by killing it. It is a very realistic cause and effect summary. Living sparingly is not quite a life style characteristic especially among the youths who are targeted with these tiny flats.
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I also credit JvdK for coining ‘shoebox’ in giving the truer identity of the standard size of flats in Hong Kong. Perhaps he needs to move on with the time and downsize the shoebox with a term that is both a fair and poignant for those luxury prison cells LKS is selling and Hong Kong people are off loading from him.

John Adams Aug 4th 201412:22am

Am I naive is saying that I find it surprising that John cannot- ever- get -budget-calculations-correct Tsang has not thought of a luxury goods tax ?
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I have no idea at all how much this would raise per % - point tax , but I'm sure Jake could put a ballpark number on it
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Assuming this would in fact raise several HK$10's of billions if imposed at - say - 25%, this would seem ( to my naive mind) to kill three birds with one stone: 1, Raise regular tax money to close Tsang's doomsday warnings of when our HK$ trillions in reserve funds finally run out (year 2114 ... or did Tsang 'accurately' predict 2113? )
2, Deter Mainland only-for-shopping / one-day+night tourists who clog up our transport systems
3. Put avaricious landlords out of business and return shopping plazas to the people of HK
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OK, shed a few crocodile tears for the tycoon tai tais ... haha !
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But I would much rather be able to buy affordable road-side stall food in places like Causeway Bay and TST (while shopping for HK$60 T-shirts ) than to buy Gucci handbags at lower-than-Mainland prices once in a decade.

hkgamaranto Aug 3rd 201411:18pm

The day Mr. Van der Kamp will be deported in handcuffs from Hong Kong for blatantly offending the Central government again I will not only stop buying this crappy paper but I will leave too

caractacus Aug 4th 20143:13am

Missing the big point again. You do not point out that the biggest factor in the downturn in retail sales is laundered money from China and the recent (probably) temporary crackdown on corruption and money smuggling is the main reason for the drop in sales.
Your silly graphs mean nothing and are a dishonest way to support the position of the corrupt tycoon / business / government establishment which has so badly screwed the majority of the populace.
Have you no conscience?